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Banking services exempt from GST?

SBI pointed out that a high GST rate will increase the cost of banking services, including those that are for the poor

The views of the bank have found favour with the select committee which has proposed that banking services be kept out of GST.

New Delhi: With goods and services tax (GST) inching closer to the April 2016 rollout deadline, the clamour for exemptions has started.

Joining the race is State Bank of India (SBI), which has sought that banking services be exempted from GST as is the global practice. In its views given to the select committee scrutinising the Constitution amendment bill for GST, SBI pointed out that a high GST rate will increase the cost of banking services, including those that are for the poor.

“Presently, the (service) tax is applicable on all fee based activities, including the services provided to weaker sections of society, whose accounts were opened for financial inclusion to achieve the social goal of the government. Retail transactions, in terms of volume, constitute more than 90% in banks.

The value of services for most of these transactions does not exceed Rs.100,” SBI said.

The views of the bank have found favour with the select committee which has proposed that banking services be kept out of GST. In case that is not possible, the committee has recommended that at least services offered to retail customers, interest, foreign currency and trading in securities should be exempted from GST.

At present, service tax at the rate of 14% is levied on services offered by banks. However, the final GST rate is expected to be much higher than this if not as high as the initial rate of 27% that was discussed.

The committee said that in case of a high GST rate, the rate for the banking industry should be kept at a minimum.

The government will not need to make any changes in the Constitution amendment bill if it decides to accept these recommendations as these exemptions can be provided at the time of formulating the law.

The bank has also sought that single registration be allowed to make it easier for consumers to avail cenvat credit. At present, it is being envisaged that banks will have to register in every state where they will have a branch or an ATM. This is likely to become cumbersome for banks.